Harami Cross

What Is a Harami Cross?

A harami cross is a Japanese candlestick pattern that comprises of a large candlestick that moves toward the trend, followed by a small doji candlestick. The doji is completely held inside the prior candlestick's body. The harami cross pattern proposes that the previous trend might be going to reverse. The pattern can be either bullish or bearish. The bullish pattern flags a potential price reversal to the upside, while the bearish pattern flags a potential price reversal to the downside.

Understanding the Harami Cross

A bullish harami cross pattern forms after a downtrend. The main candlestick is a long down candle (regularly colored black or red) which demonstrates that the merchants are in control. The subsequent candle, the doji, has a narrow reach and opens over the previous day's close. The doji candlestick closes close to the price it opened at. The doji must be totally contained with the real body of the previous candle.

The doji shows that some hesitation has entered the minds of merchants. Normally, traders don't act on the pattern except if the price follows through to the upside inside the next several candles. This is called confirmation. Some of the time the price might stop for a couple of candles after the doji, and afterward rise or fall. A rise over the open of the main candle affirms that the price might be going higher.

A bearish harami cross forms after an uptrend. The main candlestick is a long up candle (normally colored white or green) which shows purchasers are in control. This is followed by a doji, which shows uncertainty with respect to the purchasers. By and by, the doji must be held inside the real body of the prior candle.

Assuming that the price drops following the pattern, this affirms the pattern. Assuming the price keeps on rising following the doji, the bearish pattern is discredited.

Harami Cross Enhancers

For a bullish harami cross, a few traders might act on the pattern as it forms, while others will sit tight for confirmation. Confirmation is a price move higher following the pattern. Notwithstanding confirmation, traders may likewise give a bullish harami cross more weight or significance on the off chance that it happens at a major support level. In the event that it does, there is a greater chance of a larger price move to the upside, particularly assuming there is no close by resistance overhead.

Traders may likewise watch other technical indicators, for example, the relative strength index (RSI) moving up from oversold region, or confirmation of a move higher from different indicators.

For a bearish harami cross, a traders favor waiting at the cost to move lower following the pattern before acting on it. Furthermore, the pattern might be more critical if happens close to a major resistance level. Other technical indicators, for example, a RSI moving lower from overbought region, may assist with affirming the bearish price move.

Trading the Harami Cross Pattern

It isn't required to trade the harami cross. A few traders use it just as an alert to be watching out for a reversal. If as of now long, a trader might take profits in the event that a bearish harami cross shows up and, the price begins dropping after the pattern. Or on the other hand, a trader in a short position might hope to exit on the off chance that a bullish harami cross shows up and, the price begins rising shortly later.

A few traders might opt to enter positions once the harami cross shows up. In the event that entering long on a bullish harami cross, a stop loss can be placed below the doji low or below the low of the primary candlestick. A potential place to enter the long is the point at which the price moves over the open of the main candle.

In the case of entering a short, a stop loss can be placed over the high of the doji or over the high of the principal candle. One potential place to enter the trade is the point at which the price dips under the principal candle open.

Harami cross patterns don't have profit targets. Consequently, traders need to utilize another method of deciding when to exit a profitable trade. A few options incorporate utilizing a trailing stop loss, finding an exit with Fibonacci extensions or retracements, or utilizing a risk/reward ratio.

Illustration of a Harami Cross

The following chart shows a bearish harami cross in American Airlines Group Inc. (AAL). The price had been falling in an overall downtrend, however at that point leveled out into a large range. The price moved higher into a resistance area where it shaped a bearish harami pattern. Following the pattern, the price moved lower. This gave confirmation and an opportunity to exit longs or enter short positions.

The price proceeded with lower for two or three weeks before reversing and afterward breaking over the resistance level.

Highlights

• A bearish harami cross is a large up candle followed by a doji. It happens during an uptrend.
• The bearish pattern is confirmed by a price move lower following the pattern.
• The bullish harami cross is confirmed by a price move higher following the pattern.
• A bullish harami cross is a large down candle followed by a doji. It happens during a downtrend.